1995

We ask when firms with increasing returns can cover their costs independently by charging two-part tariffs (TPTs), a condition we call independent viability. To answer, we develop notions of substitutability and complementarity that account for the total value of goods and use them to find the maximum extractable surplus. We then show that independent viability is a sufficient condition for existence of a general equilibrium in which regulated natural monopolies use TPTs. Independent viability also guarantees efficiency when the increasing returns arise solely from fixed costs. For arbitrary technologies, it ensures that a second welfare theorem holds. JEL Classification: D50, C62, D60.